FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-16736
GULFSTAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2442288
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Cleveland St. Clearwater, FL 34655
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (727) 441-4442
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definite proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-K.
[X]
As of September 30, 1997 the Company had 9,106,365 shares of common stock and
75,000 shares of preferred stock outstanding.
<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
Gulfstar Industries, Inc. (formerly Tier Environmental Services, Inc.) (the
"Company"), was incorporated under the laws of Delaware on December 3, 1986. The
Company was formed to seek potential business opportunities which in the opinion
of management may provide a profit to the Company.
On July 14, 1989, the Company entered into an Agreement and Plan of Re-
organization with Models World, Inc. ("MWI"), pursuant to which the Company
acquired all the issued and outstanding shares of MWI.
On October 1, 1993, the Company spun off all of its subsidiaries through
that date and had, as a result, recorded a quasi-reorganization as of that date.
The Company is presently a holding corporation consisting of two wholly
owned subsidiaries which discontinued operations during the fiscal year ended
September 30, 1997; Plant Technical Services, Inc. in Texas, and Tier
Environmental of Florida. The Texas subsidiary was an engineering consulting and
placement service and the Florida subsidiary has been involved in environmental
clean-up.
Tier Environmental of Florida
On September 26, 1994, the Company acquired all of the issued and
outstanding shares of Tier Environmental Services, Inc. ("Tier of Florida"), a
Florida corporation. The Company issued 1,491,032 restricted shares of the
Company's common stock in exchange for all of the issued and outstanding common
shares of Tier of Florida. This subsidiary was included in the Company's results
of operating activities for the years ended September 30, 1995 and 1996. During
the year ended September 30,1997 the Company discontinued the operations (see
Part F/S - Item 7; "Discontinued Operations") of this subsidiary and on
September 26,1997 this corporation was administratively dissolved by the
state of Florida.
Gulfstar Industries, Inc. (Parent Company)
On September 29, 1994 the Company changed its name to Tier Environmental
Services, Inc. to reflect the above-mentioned merger. On January 10, 1996 the
Company changed its name to Gulfstar Industries, Inc..
On July 22, 1997 the Company filed a petition under Chapter 11 of the
bankruptcy laws. The significant petition proposals for the reorganization of
the Company includes:
1. The reverse split of prior outstanding shares of (1) one "new" share
for each (25) twenty-five "old" shares.
2. The 75,000 preferred shares will be converted to common shares prior
to the reverse split above.
3. Accepted proof of claims by creditors in class III (unsecured) and
class IV (secured) will receive one share of post reverse split
common stock for every $30 of the amount in which the holder has an
approved claim.
On August 12, 1998 the court approved the plan of reorganization, which is
expected to become effective, as confirmed on September 2, 1998, in
January 1999.
Plant Technical Services, Inc.
On September 27, 1995, the Company entered into a merger and acquisition
plan to acquire all the shares and assets of Plant Technical Services, Inc.
("PTS"), an engineering and technical services firm consulting to the power
industry, located in the Dallas/Ft. Worth area of North-Central Texas. The
Company issued Seventy Five Thousand (75,000) shares of convertible preferred
stock at a par value of Ten Dollars ($10) per share, in addition to Seven
Hundred Fifty Thousand (750,000) shares of common stock as per Rule 144, to the
shareholders of PTS, in exchange for all the issued and outstanding stock of
PTS.
The cash and note consideration, in addition to the shares issued was a total of
One Million Two Hundred Twenty Thousand Dollars ($1,220,000) to be paid as
follows: One Hundred Thousand Dollars ($100,000) at closing: Two Hundred Twenty
Thousand Dollars ($220,000) within One Hundred Eighty (180) days from the
closing date, and the balance of Nine Hundred Thousand Dollars ($900,000) in
the form of a note, to be paid in installments over a five year period
commencing on March 1, 1996. The initial management of PTS was headed by the
former majority shareholder of PTS and the existing managerial staff at the
time of the acquisition.
On May 15, 1996 the Company terminated the president and former shareholder
and the Company is involved in litigation which it plans on resolving by
renegotiating the terms of this agreement. The Company has withheld payments on
the note above during this period until such time a resolution has been reached.
This subsidiary was included in the Company's results of operating
activities for the fiscal year ended September 30, 1996 and the first quarter of
the fiscal year ended September 30, 1997.
During the year ended September 30,1997 the PTS subsidiary discontinued
operations and the subsidiary recorded losses on the abandonment of a project in
Mexico, offset by liabilities directly associated with this project as well as
the impairment of fixed assets and goodwill offset by liabilities directly
associated with these assets including liabilities it had recorded to a
shareholder pursuant to APB16, accounting for the acquisition of a subsidiary
utilizing the purchase method. Certain administrative liabilities remained as
of September 30,1997 (See Part F/S - Item 7; "Discontinued Operations").
On July 22,1998 PTS subsidiary filed a voluntary petition for complete
liquidation under Chapter 7 of the bankruptcy code in the Middle District of
Florida, Tampa Division.
(b) Public Offering of Securities
On August 28, 1987, the Company filed a Form S-18 Registration Statement
under the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Registration Statement"). The Registration Statement was
declared effective on April 6, 1988. Pursuant to the Registration Statement,
the Company offered and sold 10,000,000 Units (250,000 units adjusted for the
1 for 40 reverse stock split), each Unit consisting of one share of $.0001
($.004 adjusted for 1 for 40 reverse split) par value Common Stock and
one-half Class A Warrant, one-half Class B Warrant and one-half Class C
Warrant (the Class A Warrants, Class B Warrants and Class C Warrants are
collectively referred to herein as the "Warrants"), at a price of $.02 ($.80
adjusted for the 1 for 40 reverse split) per Unit. The period for exercise of
all the Warrants has expired without any of the Warrants being exercised.
At the closing of such public offering on July 25, 1988, the Company
received aggregate net proceeds of $138,242 after deduction of expenses totaling
approximately $61,758 which consisted primarily of broker commissions and a non-
accountable expense allowance to the underwriter, and filing, legal, accounting,
printing and miscellaneous expenses.
(c) Other Matters
On November 25, 1989, the shareholders and directors of the Company
approved a proposal to reverse split the Company's common stock on a 1 for 40
basis, increase the exercise price of the Class A, B, and C Warrants to $1.60,
$2.40 and $3.20 respectively and increase the par value of the Common Stock to
$.004 per share.
On September 9, 1994 there was a reverse split of eight to one (8:1) that
resulted in a par value of $.032 from the previous par value of $.004. All
amounts related to common stock issued and outstanding as well as earnings per
share figures for 1993 have been restated to reflect the above split.
During the year ended September 30, 1992 the Company issued 1,354,000
restricted shares of its common stock as a result of the merger with HBL. In
addition, the Company issued 3,310,000 restricted shares of its common stock to
individuals who provided services to the Company in prior years. As of September
30, 1993 the total number of shares outstanding was 9,892,495. After the 8:1
reverse split, effective September 8, 1994 this number became 1,236,562. On
September 22, 1994, there were an additional 350,000 shares that the Company
issued as part of a Regulation S registration. Also, an additional 1,311,570
shares were issued as part of several S-8 registration statements that the
Company authorized for individuals that had provided services for it during the
last several years. On September 26, 1994, as part of the agreement with Tier
Environmental Services, Inc. of Florida the Company issued 1,491,032 restricted
shares of its common stock to the Tier shareholders. On January 26, 1995 the
Company issued 325,000 shares as part of an S-8 registration, to various
entities for services provided for the Company as per their consulting
agreements. On that same date the Company also issued 75,000 restricted
shares under Rule 144 for work to be performed on behalf of the Company. On
April 18, 1995, May 5, 1995, and May 8, 1995 the Company issued an aggregate
625,000 shares in connection with Regulation S agreements with five offshore
investment entities.
On May 10, 1995 the Company requested the retirement of 136,466 restricted
shares from a shareholder who was issued the shares as part of a performance
contract which was never finalized and in dispute. On September 22, 1995 the
Company issued 800,000 shares as part of four separate consulting agreements
for work performed for the Company. On September 27, 1995, as part of the
agreement, to acquire PTS, the Company issued an additional 750,000 shares of
common stock and 75,000 shares of convertible preferred stock to the previous
PTS shareholders.
On September 28, 1995 the Company retired the 600,000 MBT convertible preferred
shares, in connection with the spinning out of MBT. In June of 1996 the Company
issued 110,000 shares to a law firm and a consultant for services performed
during the period ended September 30, 1996.
(d) Competition
The Company has many competitors who are engaged in the various areas of
its business in the United States and Canada. Many of these competitors have
substantially greater financial and technical resources, and marketing
capabilities than the Company. Competitors with superior resources may be able
to utilize such resources to market these products and idea, and gain a
competitive edge over the Company.
(e) Employees
During the period ended September 30, 1997 and prior the Company has
consultants in the Florida subsidiary, and up to 15 full-time employees in
the Texas subsidiary. In addition, and through its subsidiaries, the Company
from time to time, hires 500 to 600 employees in the Texas subsidiary and
subcontractors, as needed in both subsidiaries. The Company expects to use
consultants, attorneys and accountants as necessary, and does not anticipate
a need to engage any additional full-time employees at this time.
Item 2. Properties.
The Company had maintained its offices at 20505 U.S. 19N., #12-283,
Clearwater, FL. 34624. The operational division of the Tier subsidiary was
located at 2901 West Busch Blvd., #711, Tampa, FL. 33618 through December 31,
1996, and the operational headquarters of PTS were located at 500 Grapevine
Highway, Suite 335, Hurst, Texas 76054, through May 8, 1997.
Item 3. Legal Proceedings.
The Company had commenced an action against its former president of its MBT
subsidiary. The former president of the PTS subsidiary has commenced an action
for wrongful termination and the Company has defended its position and has
commenced a countersuit alleging misrepresentation in connection with the
acquisition of PTS. Both subsidiaries are defendants in various litigations
with debtors, over contract obligations and performance clauses. The Company
filed for reorganization under Chapter 11 of the bankruptcy laws which has been
approved by the court, subject to confirmation which is anticipated to be
received in January 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information. The Company's Common Stock is traded in the
over-the-counter market.
The following sets forth the high and low bid quotations for each quarter
for the two-year period through September 30, 1997, based upon information
received from the National Quotation Bureau. Such quotations reflect inter-
dealer prices, and do not include retail mark-up, mark-down or commission. They
may not represent actual transactions.
High Bid Low Bid
1997 Unavailable at this time
1996 First Quarter $1.000 $ .656
Second Quarter $ .843 $ .578
Third Quarter $ .828 $ .359
Fourth Quarter $ .421 $ .198
(b) Shareholders. As of September 30, 1997, the Company had 9,106,365
shares of common stock outstanding, held by approximately 1100 persons of
record, including brokerage firms and/or clearing houses holding the Company's
common shares in "street name" for their clients. The Company believes that
there are approximately 3,500 beneficial owners of its common stock. In
addition, the Company had authorized and issued 75,000 shares of Convertible
Preferred stock in 1995 as part of the PTS transaction, which as part of the
plan of reorganization is to be converted to a like amount of shares of
common stock.
When the plan, all shares will be reverse split with one (1) "new" share for
each (25) twenty-five "old" shares.
(c) Dividends. The Company has not paid or declared any dividends upon
its Common Stock since its inception and does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Plan
of Operations.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements, as well as information relating to the plans of the Company's
current management. The Company's operating divisions included Tier
Environmental, Inc.
and Plant Technical Services, Inc. for both periods presented and during the
year ended September 30, 1997 both subsidiaries discontinued operations and the
Company filed a voluntary petition for reorganization under Chapter 11 of the
bankruptcy laws.
About the subsidiaries discontinued during the year ended September 30, 1997.
TIER Environmental Services, Inc.
The primary revenue of this environmental subsidiary came from its work in
direct cooperation with the Florida legislature towards reimbursement for
eligible sites for environmental clean-up. The Governor's executive order dated
March 8, 1995 in reference to the Inland Protection Trust Fund (the "fund")
referendum had caused an uncertainty during the fiscal year ended September 30,
1996 and, in the opinion of management, ultimately led to the discontinuation of
this subsidiary during the first quarter of the fiscal year ended September 30,
1997.
On March 29, 1995 Governor Chiles signed into law 95-2, Laws of Florida (SB
1290). This law revises Florida Statute 376 as it relates to continued and
future site rehabilitation tasks for eligible sites. Chapter 95-2 does not
specifically amend or change the reimbursement regulations set forth in Chapter
62-773, F.A.C.
It should also be noted that the Legislature, DEP and representatives from
the petroleum clean-up industry worked during the last Legislative session to
pay off the entire outstanding backlog of reimbursement claims through a bond
issue, which included most "packages" the Company had in place through
December 31, 1996. During the quarter ended December 31, 1996, the Tier
subsidiary discontinued operations.
In December, 1996, the former method of funding under this program ended
by statutory deadline, with certain exceptions permitted to April 15, 1997.
Funding for substantially all projects which had been in process through January
1996 was required to be completely funded by outside investors and submitted to
the state of Florida for review and approval by December 31, 1996.
Plant Technical Services
The primary revenue sources of this subsidiary came from placing temporary
employees with utilities in North America with high demands at peak periods for
engineering professionals.
During the fourth quarter 1995 the Company's former president spent a
substantial portion of his time pursuing one acquisition in Mexico, the Hemyc
Group (see form 10-K for the fiscal year ended September 30, 1996) which in
turn, the Company has since rescinded. The Company had also continued to
attempt to complete or resolve a joint venture it had started with the Hemyc
Group which was substantially delayed as for the fiscal year ended September
30, 1996, due to the fiscal instability of the Hemyc group, which in the
present opinion of management was a fiscally unstable customer of this
subsidiary prior to the Company's acquisition, and is a subject to the
Company's litigation with the selling shareholder of PTS. The Company had
pursued and received a novation of the Hemyc portion of the contract and
plans on dealing with the utility directly. The Company negotiated with
several providers whom they had desired to complete the Mexican Laundry
project with or sell to outright. The Company also commenced negotiations to
sell or co-venture its placement services operations with a substantially
larger technical placement company, yet these negotiations did not provide a
resolution and the Company discontinued operations of this subsidiary
effective the quarter ended March 31, 1997.
RESULTS OF OPERATIONS
Year Ended September 30, 1997 vs. September 30, 1996
The Company's results from operations for the year ended September 30, 1996
consisted of a loss of $2,605,068 on total revenues of $4,754,717. During
the year ended September 30, 1997, the Company reported a loss from
operations, primarily of the PTS subsidiary for the first quarter of the
fiscal year of $93,433 as well as the loss from discontinued operations of
the Tier subsidiary of $1,136,162 which included the impairment of the
remaining goodwill and cancellation of indebtedness income and the loss from
discontinued operations of PTS subsidiary of $231,277, which included the
impairment of goodwill and abandonment of assets, net of the cancellation of
indebtedness directly associated with the acquisition of the same.
One major component of the loss from operations in 1996 was that at year
end the company took charges against the goodwill and bonding premium
(long lived intangible assets) of the Tier subsidiary, due to the uncertainty
surrounding the change in the method of funding the Florida program which
provided substantially all of the that subsidiary's revenue, in the form of
an impairment loss of $1,430,349. This represents one half of the net value
recorded for goodwill and 100% the remaining bonding premium capitalized in
connection with the acquisition on September 24, 1994. The balance of the
goodwill was recorded as an impairment during the year ended September 30, 1997.
Liquidity and Working Capital and Plan of Operation
The Company's working capital remained in a deficit for the year ended
September 30, 1997. At September 30, 1996 the Company had a deficit of
$1,959,620 as compared to a deficit of $1,105,516 at September 30, 1997.
The Company completed an offering of stock in early 1996 which provided
approximately $200,000 of working capital to the Company, which was more than
absorbed by the operating losses in fiscal 1996 and 1997.
As a result of the above, management believes the filing of the plan of
reorganization under Chapter 11 offers the best opportunity to restore
shareholder value to the Company's stockholders in light of the results of
operations and the financial condition of the Company.
Inflation
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
<PAGE>
Item 7. Financial Statements.
(a)(1) The following documents are filed as part of this report:
a. Consolidated Financial Statements of the Registrant,
Gulfstar Industries, Inc.
Pages
Report of Independent Accountant F-1
Report of Independent Auditors' F-2
Consolidated Balance Sheet of Gulfstar Industries,
Inc. as of September 30, 1997 (Unaudited) F-3
Consolidated Statements of Operations of Gulfstar
Industries, Inc. for the years ended
September 30, 1997 (Unaudited) and 1996 F-4
Consolidated Statements of Changes in Stockholders'
Equity of Gulfstar Industries, Inc. for the period
from October 1, 1994 to September 30, 1997 (Unaudited)F-5,F-6
Consolidated Statements of Cash Flows of Gulfstar
Industries, Inc. for the years ended
September 30, 1997 (Unaudited) and 1996 F-7,F-8
Notes to the Financial Statements of Gulfstar
Industries, Inc. F-9-F-24
b. Interim Financial Statements.
Not Applicable
c. Financial Statements of Businesses Acquired and to be Acquired
Not Applicable
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of Gulfstar Industries, Inc.
We have compiled the accompanying consolidated balance sheet of Gulfstar
Industries, Inc. and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year then ended, in the accompanying index to the financial
statements (Item 7.), in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying 1997 financial statements and, accordingly, do not
express an opinion or any other form of assurance on them.
The financial statements for the year ended September 30, 1996, were audited by
us, and we expressed a qualified opinion regarding the entity's ability to
continue as a going concern and the uncertainty of the effect that a change in
the State of Florida's program which provided the primary source of revenue to
the Florida Subsidiary would have on the Company in our report dated January 9,
1997, but we have not performed any auditing procedures since that date.
/s/Schuhalter, Coughlin & Suozzo, LLC
SCHUHALTER, COUGHLIN & SUOZZO, LLC
Raritan, New Jersey
December 30, 1998
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Gulfstar Industries, Inc.
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows for the year ended September 30, 1996 of
Gulfstar Industries, Inc. and subsidiaries as of September 30, 1996 in the
accompanying index to financial statements (Item 7). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements for the year ended September 30, 1996 listed in the
accompanying index to financial statements (Item 7) present fairly, in all
material respects, and the consolidated results of its operations and cash flows
for the year ended September 30, 1996 in conformity with generally accepted
accounting principles.
As more fully described in Note 13, the state of Florida changed the program
which provides the primary source of revenue to the Florida subsidiary. At this
time the company can not estimate how much revenue if any it will derive under
the new program, nor the effect upon the carrying value of goodwill in that
subsidiary.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred substantial operating losses and had
experienced a working capital deficit as of September 30, 1996 of $1,959,620.
These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/Schuhalter, Coughlin & Suozzo, LLC
SCHUHALTER, COUGHLIN & SUOZZO, LLC
Raritan, New Jersey
January 9, 1997, except for
Note 13, as to which the date is
March 11,1997
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
Assets
Current Assets
Cash $ 129
Total Current Assets 129
Total Assets 129
Liabilities and Stockholders' Equity
Current Liabilities
Unsecured creditors of subsidiary 239,885
Class III Creditors 53,111
Class IV Creditors 812,649
Total Current Liabilities 1,105,645
Stockholders' Equity
Common stock, par value $.032 per share;
authorized 10,000,000 shares, issued and
outstanding 9,106,365 291,404
Convertible preferred stock, authorized 1,000,000
shares, par value $10.00; 75,000 shares issued
and outstanding(convertible and subject to
reorganization) 750,000
Additional paid in capital 3,166,718
Retained deficit (October 1, 1993) (59,033)
Retained deficit, subsequent to quasi-reorganization (5,254,605)
Total Stockholders' (Deficit) (1,105,516)
Total Liabilities and Stockholders'(Deficit) $ 129
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For For
the Year the Year
Ended Ended
September 30, September 30,
1997 1996
(Unaudited)
Contract Revenues Earned $ 967,260 $ 4,728,060
Other Income - 26,657
Total Revenue 967,260 4,754,717
Cost of contract revenues earned 823,028 4,054,494
Gross Profit 144,232 700,223
Operating Expenses
Selling and administrative expenses 174,383 1,430,004
Depreciation and amortization 28,896 320,178
Interest expense 32,386 189,515
Provision for bad debts 2,000 14,619
Loss from operations (93,433) (1,254,093)
Impairment loss - (1,430,349)
Loss from discontinued operations of Florida
environmental subsidiary including $1,101,929
of impairment of goodwill, $38,946 of bad
debts, $16,403 abandonment of fixed assets,
$196,132 cancellation of indebtedness
income and $213,961 loss from operations
during the phase out period (1,136,162) -
Loss from discontinued operations of Texas
engineering consulting subsidiary including
$492,590 of impairment of goodwill, $113,359
of bad debts, $1,151,092 abandonment of data
base and fixed assets, $28,997 depreciation
and amortization, $1,556,981 cancellation of
indebtedness income and $144,576 loss from
operations during the phase out period (231,277) -
(Loss) before taxes (1,460,872) (2,684,442)
Benefit from income taxes - 79,374
Net (Loss) $(1,460,872)$(2,605,068)
(Loss) per share $ (.159)$ (.283)
Weighted average shares outstanding 9,181,365 9,192,737
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1995
THROUGH SEPTEMBER 30, 1996 AND OCTOBER 1, 1996
THROUGH SEPTEMBER 30, 1997 (UNAUDITED)
Common Stock Preferred Stock
Shares Amount Shares Amount
Balance, October 1, 1995 8,399,123 $ 268,772 75,000 $ 750,000
Issuance of common stock 1,110,000 35,520 - -
Net loss for year ended
September 30, 1996 - - - -
Balance, September 30, 1996 9,509,123 304,292 75,000 750,000
Recision of contingent common
stock from prior acquisition
(Unaudited) (357,133) (11,428) - -
Recision of common stock for
services (unaudited) (45,625) (1,460) - -
Net loss for year ended
September 30, 1997
(Unaudited) - - - -
9,106,365 $ 291,404 75,000 $ 750,000
<PAGE>
Retained
Quasi- Deficit
Additional Reorganization Subsequent
Paid In (10-1-93) To Quasi-
Capital Adjustment Reorganization Total
$3,107,135 $ (59,033) $(1,188,665) $2,878,209
207,799 - - 243,319
- - (2,605,068) (2,605,068)
3,314,934 (59,033) (3,793,733) 516,460
(131,426) - - (142,854)
(16,790) - - (18,250)
- - (1,460,872) (1,460,872)
$3,166,718 $ (59,033) $(5,254,605) $(1,105,516)
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
September 30,
1997 1996
(Unaudited)
OPERATING ACTIVITIES
Cash Flows From (Used In) Operating Activities:
Net loss $ (93,433) $(2,605,068)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 28,896 320,178
Expense reduction via recision of common stock (18,250) 44,419
Allowance for escrow loss - 96,108
Provision for bad debts 2,000 14,619
Loss on assets disposed - 1,498
Impairment loss - 1,430,349
Decrease (increase) in contracts in-progress - 3,307,281
Decrease (increase) in accounts receivable (60,716) 407,370
(Increase) decrease in other receivables
and escrow deposits - (354,669)
(Decrease) increase in contracts payable - (3,241,958)
Increase in accounts payable and accrued
expenses 160,090 238,345
(Decrease) increase in deferred taxes - (61,940)
Increase in accrued interest 32,386 128,079
Decrease (increase) in other assets - 7,184
Net cash from (used in) operating activities 50,973 (268,205)
DISCONTINUED OPERATING ACTIVITIES:
Cash Flows (Used In) Discontinued Operating
Activities:
Net loss (1,367,439) -
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 28,997 -
Expense paid by issuance of common stock - -
Allowance for escrow loss - -
Provision for bad debts 152,305 -
Loss on assets disposed 1,167,495 -
Impairment losses 1,594,519 -
Cancellation of indebtedness 1,616,552 -
Decrease (increase) in contracts in progress 1,493,814 -
Decrease (increase) in accounts receivable 720,491 -
(Increase) decrease in other receivables and
escrow deposits 304,212 -
(Decrease) increase in contracts payable (1,493,814) -
(Decrease) increase in accounts payable and
accrued expenses (1,037,529) -
Net cash (used in) discontinued operating
activities (52,501) -
INVESTING ACTIVITIES
Cash Flows Used In Investment Activities:
Acquisition of fixed assets - (11,219)
Investment in Mexican project - (54,683)
Net cash used in investing activities - (65,902)
<PAGE>
GULFSTAR INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -(Continued)
For the Years Ended
September 30,
1997 1996
(Unaudited)
FINANCING ACTIVITIES
Cash Flows Used In Financing Activities:
Issuance of common stock, net of direct
offering costs of $35,100 in 1996 - 198,900
Repayment of stockholder loans - (2,000)
Proceeds from loan payable - related parties - 110,583
Repayment of notes payable - (35,482)
Net cash provided by financing activities - 272,001
Net (decrease) in cash and cash equivalents (1,528) (62,106)
Cash and cash equivalents, beginning of year 1,657 63,763
Cash and cash equivalents, end of year $ 129 $ 1,657
<PAGE>
NOTE 1 - GOING CONCERN
The accompanying financial statements for the year ended September 30,
1996 have been prepared in conformity with generally accepted principles
which contemplates continuation of the company as a going concern. Since
the Quasi reorganization (October 1, 1993) through September 30, 1996, the
Company had lost $3,793,733 on a consolidated basis. For the year ended
September 30, 1996 the consolidated entity has sustained total losses of
$2,605,068 and additionally the company had a working capital deficit of
$1,959,620 as of that date. The company's Texas subsidiary, PTS, has
experienced reduced volume in its core engineering professional placement
business as well as substantial delays in a Joint Venture for a Mexican
utility. The company's Florida subsidiary , which has derived the
majoritive share of its revenue from the clean up of petroleum
contamination at authorized sites in Florida, has completed the funding of
projects it has had under the pre- existing Florida reimbursement program.
Effective January 1, 1997 Florida has changed its program for authorizing
site work. The company has yet to obtain a qualified project under the new
program.
Management had planned to raise additional capital through the sale of its
common stock and the obtainment of long term financing on the investment
in equipment-Mexican project, or alternatively find a buyer for the entire
Mexican project in its PTS subsidiary. Management also considered a
divisive re-organization of the PTS subsidiary to segregate the Mexican
project from the placement services division of that company. Also, in
the Texas subsidiary, the PTS management planned to improve its gross
profit and refocus its efforts on its core professional placement services
at margins sufficient to provide profitable operations. Management also
planned to obtain some efficiencies of operations by consolidating some of
the compatible functions and expenses of its subsidiaries. Management
planned to reduce overhead in its Florida subsidiary and only take on such
work it considered profitable in that company.
In view of these matters, realization of the assets from the balance sheet
at September 30, 1996 was dependent upon future profitable operations of
the Company's subsidiaries. Management believed that the actions taken to
realize value from its investments, and settling its debts by limiting
certain debts and issuing stock would provide the opportunity for the
company to continue as a going concern.
NOTE 2 - Plan of Reorganization (Unaudited)
The Company, on July 22, 1997, has filed a petition under Chapter 11 of
the Bankruptcy laws. The significant petition proposals divide pre-
petition liabilities into two categories:
- Class III consisted of unsecured obligations totaling $53,111. The
obligees will be impaired to the extent that they will not be paid the
full amount owed them, and will receive one share of post reverse split
common stock for every $30 of the amount in which the holder has an
approved claim.
- Class IV consisted of equity security holders and related party lenders
in the amount of $812,649 and 75,000 preferred shares. The security
holders will be impaired to the extent that they will not be paid the full
amount owed them, and will receive one share of post reverse split stock
for every $30 of the amount in which the holder has an approved claim.
Preferred shareholders shall receive one common share for each preferred
share, prior to the reverse split of shares pursuant to the plan of
reorganization.
The plan of reorganization also provided for the shareholders as of the
date of the reorganization to receive 1 share of "new" common stock for
each 25 shares of "prior" common stock or 367,225 "new" shares for the
9,181,365 "old" shares, including 75,000 shares of preferred stock as
converted, previously outstanding. Additionally a like amount of warrants
to purchase new shares, exercisable not sooner than six months or not
later than eighteen months, after the effective date of the plan, at 75% of
the market price on the date of exercise; will be granted. The company
anticipates the confirmed plan of re-organization to become effective
in January 1999.
When and if this plan becomes effective, the Company has agreed in
principal to enter into a plan of merger with Media Vision Properties, at
such time the Company will have approximately 400,000 shares of common
stock outstanding and the shareholders of Media Vision Properties will
receive approximately 4,500,000 new shares of post reverse split common
stock. The effects of approval and confirmation of the Plan are not
reflected in the financial statements as of September 30, 1997.
NOTE 3 - Summary of Significant Accounting Policies
Basis of Presentation (September 30, 1997 - Unaudited)
The accompanying consolidated balance sheet at September 30, 1997 and the
related statements of income, cash flows and stockholders' equity for the
year then ended is unaudited. In the opinion of the Company's management
these reflect all adjustments necessary for a fair presentation of the
results for the unaudited period. Specifically, insufficient information
was available for certain accounting records of the discontinued
subsidiaries to be audited, which provided a scope limitation beyond the
control of management, and the Company's independent accountant informed
the Company that the compiled financial statements for September 30, 1997
was the highest level of service that they could provide under the
circumstances. The Company believes the September 30, 1997 financial
statements satisfy the filing requirements, under these circumstances, in
reliance upon Exchange Act Rule 12B-21 as they represent the best and most
current financial information that the Company has at this time.
Nature of Business
Gulfstar Industries, Inc. (the "Company") was originally incorporated
under the laws of the State of Delaware on December 3, 1986 as Flair
Communications, Inc.
After the completion of its public offering in August of 1987 as Flair
Communications, the Company went through management and operational
changes and on October 1, 1993 underwent a quasi-reorganization.
On September 26, 1994, the Company acquired all of the issued and
outstanding shares of Tier Environmental Services, Inc. ("Tier of
Florida"), a Florida corporation. The Company issued 1,491,032 restricted
shares of the Company's common stock in exchange for all of the issued and
outstanding common shares of Tier of Florida. During the year ended
September 30,1997, this subsidiary discontinued operations and was
administratively dissolved by the State of Florida on September 26,1997.
On September 29, 1994 the Company changed its name to Tier Environmental
Services, Inc. to reflect the above-mentioned merger.
In January 1996, the Company changed its name to Gulfstar Industries, Inc.
On September 27, 1995, the Company entered into a merger and acquisition
plan to acquire all the shares and assets of Plant Technical Services,
Inc. ("PTS"), an engineering and technical services firm consulting to the
power industry, located in Texas. The Company issued Seventy Five
Thousand (75,000) shares of convertible preferred stock at a par value of
Ten Dollars ($10) per shares, Seven Hundred Fifty Thousand (750,000)
shares of common stock pursuant to SEC Rule 144, as well as cash and debt
of $1,220,000 to the shareholders of PTS, in exchange for all the issued
and outstanding stock of PTS.
During the year ended September 30, 1997 (Unaudited) the PTS subsidiary
discontinued operations and the subsidiary recorded losses on the
abandonment of a project in Mexico, offset by liabilities directly
associated with this project as well as the impairment of fixed assets and
goodwill offset by liabilities directly associated with these assets
including liabilities it had recorded to a shareholder pursuant to APB16,
accounting for the acquisition of a subsidiary utilizing the purchase
method. Certain administrative liabilities remained as of September 30,
1997 (Unaudited). On July 22,1998 the PTS subsidiary filed a voluntary
petition for complete liquidation under Chapter 7 of the bankruptcy code
in the Middle District of Florida, Tampa Division.
Acquisition of and Discontinuation of Tier Environmental Services, Inc.
On September 26, 1994 Gulfstar Industries, Inc. acquired all of the common
stock of Tier Environmental Services, Inc. through an acquisition and
redemption by Tier Environmental Services, Inc. of its common stock
totaling approximately $2,982,400 in value, exclusive of acquisition
costs. Tier's principal business is to provide environmental remediation
services in the State of Florida, at petroleum contaminated sites
designated by the State of Florida as sites subject to authorized
reimbursement under the Inland Protective Trust Fund. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. The agreement also called for the additional issuance of
Gulfstar stock to Tier shareholders if the Company spun off a former
subsidiary, which in turn the Company did on September 25, 1995. As such,
the Company is required to issue an additional 357,133 shares which were
included in the accompanying balance sheet and valued at $142,855. The
excess (approximately $2,845,220) of the total acquisition cost over the
recorded value of assets acquired was allocated to goodwill and was being
amortized over 20 years. After reviewing the carrying value at September
30, 1996 over one half of the unamortized balance was written off to
impairment loss due to the uncertainty of the effect of the change in the
Florida program will have on the Company. During the year ended September
30, 1997 (unaudited) the subsidiary discontinued operations and the
remaining carrying value was recorded as an impairment loss. The
statement of operations includes Tier's results of operations for the
years ended September 30, 1996 and September 30, 1997 (unaudited). During
the year ended September 30, 1997, the Tier subsidiary recorded losses on
the abandonment of all the assets including the permanent impairment of
goodwill of this subsidiary which was offset by income from the
cancellation of indebtedness due to insolvency.
Acquisition costs aggregating $250,000 ($75,000 in 1995 and $175,000 in
1994) have been capitalized as a result of this acquisition. Additional
acquisition costs aggregating $340,000 and $516,250 were charged to
additional paid in capital in 1995 and 1994 respectively. Such
capitalized acquisition costs relate to financing costs associated with
the acquisition, which represent premiums paid to a finance company to
assist the funding of these projects and were being amortized over 5
years. Due to the change in the funding method of this program the
balance was written off at September 30, 1996 and is included in
impairment loss.
Acquisition of and Discontinuation of Plant Technical Services, Inc.
Plant Technical Services, Inc. is engaged in the professional engineering
business, providing consulting, design, start-up support, operation,
maintenance, contract personnel and construction management service to
technical industries throughout the United States.
On September 29, 1995 Gulfstar acquired all of the common stock of Plant
Technical Services, Inc. (PTS) through an acquisition and redemption by
PTS of its stock with the issuance of 750,000 shares of Gulfstar common
stock, 75,000 shares of Gulfstar $10.00 preferred stock and cash and notes
of $1,220,000, exclusive of acquisition costs. The acquisition was
accounted for as a purchase in accordance with Accounting Principles Board
Opinion No. 16. The excess (approximately $1,277,000) of the total
acquisition cost over the recorded value of assets acquired was allocated
$500,000 to a proprietary database PTS developed which is being amortized
over seven years and $571,144 (which has been reduced by $199,006 for the
accrued loss on a long term contract net of a $6,772 deferred tax benefit)
to goodwill which was being amortized over 20 years. The statement of
operations for the year ended September 30, 1996 includes PTS since PTS
was acquired on September 29, 1995 and during the year ended September 30,
1997 (Unaudited) the PTS subsidiary discontinued operations and the
subsidiary recorded losses on the abandonment of a project in Mexico,
offset by liabilities directly associated with this project as well as the
impairment of fixed assets and goodwill offset by liabilities directly
associated with these assets including liabilities it had recorded to a
shareholder pursuant to APB16, accounting for the acquisition of a
subsidiary utilizing the purchase method. Certain administrative
liabilities remained as of September 30,1997 (Unaudited). On July 22, 1998
PTS subsidiary filed a voluntary petition for complete liquidation under
Chapter 7 of the bankruptcy code in the Middle District of Florida, Tampa
Division.
Principles of Consolidation
The accompanying consolidated balance sheet as of September 30, 1997
includes the accounts of the Company and the following subsidiaries with
results of operations included for the period subsequent to the
acquisition date:
Date of Acquisition
TIER Environmental Services, Inc. September 26, 1994
Plant Technical Services, Inc. September 29, 1995
All significant intercompany accounts and transactions have been
eliminated.
Restatement and Reclassification of Financial Statement Presentation
On October 1, 1993, by unanimous consent of the board of directors, which
at the time represented a majority of the shareholders of the Company, the
Company spun off all of its subsidiaries except for MBT Associates, of
which that aqusistion was subsequently remaned; and as of that date
recorded a quasi-reorganization adjustment.
Revenue Recognition
During 1996, the Company's revenues were derived mainly from the
reimbursement of subcontractor costs, plus a 15% fee, by the State of
Florida on eligible contracts with site owners in the Company's Florida
subsidiary, Tier Environmental Services and engineering placement services
in the Company's Texas Subsidiary, Plant Technical Services (PTS).
Revenues from cost-plus-fee contracts are recognized as costs are incurred
during the period plus the fee earned. Contract costs consist mainly of
subcontractor costs. On contracts with direct labor charges, revenues are
recognized to the extent of hours incurred at allowable billing rates.
"Contracts in Progress" represents the reimbursement due on subcontractor
billings. "Contracts Payable" represents payments due to subcontractors.
During 1997, the Company's primary revenues were derived mainly from
engineering placement services, and were based upon standard billing rates
charged by the hours worked. Corresponding expenses were recorded for all
hours included in revenue.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments
with original maturities of three months or less.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation.
Maintenance, repairs and minor replacements are charged to operations as
incurred; major replacements and betterments are capitalized.
Depreciation of fixed assets is provided on the straight-line method over
estimated useful lives of 5 to 7 years. The cost of assets sold or
retired and related accumulated depreciation are removed from the accounts
at the time of disposition, and any resulting gain or loss is reflected in
income for the period.
Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference
between the fair value and carrying value of the asset.
Goodwill
Goodwill is the excess of the purchase price over the fair value of net
assets acquired in business combinations accounted for as purchases.
Goodwill is amortized on a straight-line basis over 20 years. Goodwill is
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the sum of
the expected future undiscounted cash flows is less than the carrying
amount of the goodwill, a loss is recognized for the difference between
the fair value and carrying value of the goodwill.
Financial Instruments
The following methods and assumptions were used by the Company to estimate
fair values of financial instruments as discussed herein:
Cash and equivalents: The carrying amount approximates fair value because
of the short period to maturity.
Income Taxes
SFAS No. 109 "Accounting for Income Taxes" was issued by the Financial
Accounting Standards Board in February, 1992. SFAS No. 109 requires the
asset and liability method of accounting for income taxes. Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The Company
adopted SFAS No. 109 for the year ended September 30, 1994.
Concentration of Credit Risk and Economic Dependence
The Company's subsidiary PTS was engaged in the professional engineering
business, providing consulting, design, start-up support, operation,
maintenance, contract personnel and construction management service to
technical industries throughout the United States. The Company performed
ongoing credit evaluations of its customers' financial condition and
requires no collateral.
The Company had major customers, each of which accounted for more than 10%
of sales in 1996. Sales to these customers totaled $1,770,322 for the
year ended September 30, 1996. Accounts receivable from these customers
totaled $106,693 at September 30, 1996.
The Company was dependent upon a secured creditor, not demanding payment
on its demand note, which the creditor is a company affiliated with a
stockholder and director of the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Significant estimates included in the financial statements include the
value ascribed the consideration of the Company's stock issued in
connection with the acquisition of Tier in September, 1994 as well as the
contingent shares issued in September 1995, the value ascribed to the
Company's stock issued in connection with the acquisition of PTS in
September, 1995, and correspondingly the loss on abandonment of these
assets, net of the cancellation of the corresponding liabilities
associated with them during the fiscal year ended September 30, 1997
(Unaudited) and the value ascribed to services provided the company which
were compensated by the issuance of the Company's stock in the statement
of operations for the year ended September 30, 1996. Other significant
estimates include the anticipated loss on a long term contract, short fall
accruals, allowance for escrow loss and the valuation allowance for
deferred tax assets.
Earnings Per Share
Earnings per share amounts are computed based on the weighted average
shares outstanding plus shares that would be outstanding assuming
conversion of the preferred stock which are considered common stock
equivalents.
Supplemental Information-Statement of Cash Flows
For the Years Ended
September 30,
1997 1996
(Unaudited)
Income Tax Paid $-0- $-0-
Interest Paid $-0- $61,346
Schedule of Non Cash Investing and Financing Activities:
For the Years Ended
September 30,
1997 1996
(Unaudited)
Rescission of 357,133 contingent shares
of common stock issued to "Tier"
shareholders $ 142,854 -
Rescission of 45,625 shares issued for
services previously charged to
operating expenses $ 18,250 -
Income from cancellation of unsecured
notes payable of the "Tier" subsidiary $ 136,561 -
110,000 shares issued in 1996 for
services charged to operating expenses - $ 44,419
Reduction of and accrued expenses due to
the novation of the Mexican contract
with Hemyc - $ 269,357
Reduction of contract receivable due to
the novation of the Mexican contract
with Hemyc - $ 214,668
Reclassification of contract receivable
to investment in equipment - Mexican
project due to the novation of the
contract mentioned above - $ 630,842
NOTE 4 - CAPITAL STOCK
Common Stock
In December 1986 the Company authorized 3,000 shares and issued 1,000
shares of no par common stock. In 1987 the Company also sold 10,000 units
of common stock and warrants in a public offering, which after giving
effect to splits increased the outstanding shares of the Company to
3,625,000 and the authorized shares to 10,000,000 with a par value of
$.004.
After additional issuances of stock from 1987 through 1993, and after
adjusting for the effect of an eight to one reverse split recorded on
September 22, 1994, the Company had 1,844,776 shares outstanding on
October 1, 1993 with a par value $.032. On this date, additional paid in
capital was charged with retained deficit amounts other than par value
pursuant to the quasi-reorganization discussed in Note 3.
During 1994, the Company sold 350,000 shares in an overseas offering which
generated gross proceeds of $700,000 to the Company. Direct offering
costs of $129,237 were incurred bringing net proceeds to the Company of
$570,763.
In connection with services rendered with the above transaction and the
acquisition discussed in Note 3, the Company issued 341,182 shares of
stock for services valued at $682,364. A corresponding charge to
additional paid in capital for the same amount was recorded.
In 1994, in connection with the Company's acquisition of TIER
Environmental Services, Inc. (Florida) the Company issued 1,491,032 shares
of common stock as discussed in Note 3. These shares are subject to the
restrictions of SEC rule 144.
In 1995 the Company sold 625,000 shares in an overseas offering which
generated gross proceeds of $918,613 to the company. Direct offering
costs of $147,700 were incurred bringing net proceeds to the Company of
$770,913.
In 1995 the Company issued 2,155,000 shares of common stock for services
in connection with the overseas offerings and the acquisition of PTS
discussed in Note 3. These shares were valued at $1,551,600 and a
corresponding charge to additional paid in capital for the same amount was
recorded.
In connection with the acquisition of TIER of Florida discussed in Note 3,
357,133 shares of common stock were to be issued to the shareholders of
TIER in 1996. These shares were rescinded during the year ended September
30, 1997.
In 1996 and 1995 the Company issued 110,000 and 485,000 shares of common
stock for services which were charged to operating expenses, respectively.
During the year ended September 30,1 997 45,625 of these shares were
rescinded.
The Company sold 1,000,000 shares in January and February 1996 in an
overseas offering which generated gross proceeds to the company of
$234,000. Direct offering costs of $35,100 were incurred bringing net
proceeds to the Company of $198,900.
Reserved shares
In connection with the acquisition of TIER, discussed in Note 3, 357,133
shares of common stock became due during 1995. These shares, if and when
issued, will be subject to restriction under SEC rule 144 and have been
treated as outstanding as of September 30, 1996 and have yet to be issued.
During the year ended September 30, 1997 these shares were rescinded.
In connection with the plan of reorganization, the Company objected to the
claim of the prior shareholder of the PTS subsidiary, and as discussed in
Note 6, the disallowed claim would have to be overturned, which the
Company has been advised by counsel is unlikely. Had the claim been
allowed or should, this shareholder to be successful upon appeal he could
be awarded up to 58,833 of "new" shares pursuant to the plan of
reorganization.
Preferred Stock
The certificate of incorporation of the Company authorizes its board of
directors to issue for value 1,000,000 shares of preferred stock, $10 par
value. Preferred stock may be issued in series with such designations,
relative rights, preferences and limitations as may be fixed from time to
time by the board of directors of the Company. In connection with the
acquisition of PTS, the Company issued 75,000 shares which are convertible
into common stock on a one to one basis. In connection with the plan of
reorganization, these shares are anticipated to be
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
The Company paid $35,100 in 1996 to a company affiliated with a
stockholder and former officer for fees in connection with the issuance of
stock to overseas investors.
During the year ended September 30, 1996, $44,419 was charged to
operations based upon the value ascribed to 110,000 shares which were
issued to a law firm and a consultant for services performed during the
period. During the year ended September 30, 1997, $18,250 was treated as
a reduction of professional fees when 45,625 of these shares were
rescinded.
Included in amounts due to Class II creditors at September 30, 1997 for
expenses advanced by a company affiliated with a stockholder and director
of the company is $812,649 and $9,000 advanced from a corporate
stockholder. Other than the $9,000 from the corporate stockholder, these
amounts bear an interest rate of prime and were due upon demand. Interest
expenses on these notes were $55,318 and $58,250 for the years ended
September 30, 1996 and 1997 respectively.
Note payable to stockholder (the former sole stockholder of PTS) includes
$7,145 of a non-interest bearing instrument. Additionally, this note has
been reduced by amounts reserved for the anticipated loss on long term
contract and $918,944 remains which represents the balance on the
acquisition note after such reduction, bearing interest at 8%. $72,760 of
interest was accrued on this note and is included in interest expense and
accrued expenses for the year ending September 30, 1996. No interest was
accrued on this subsequent to the litigation discussed in Note 7, and
during the year ended September 30, 1997 these amounts were included in
the cancellation of indebtedness income of the discontinued operations of
the PTS subsidiary.
NOTE 6 - LEASES
The Company leases certain of its office facilities and office equipment
under operating leases. Future minimum lease payments as of September 30,
1997 are:
Year
1998 $ 17,556
1999 17,556
2000 5,852
Total $ 40,964
Rent expense for all premises leases for 1997 and 1996 was approximately
$12,400 and $36,164 respectively. The remaining lease obligation is
expected to be canceled in the bankruptcy proceedings and the subsidiary
has surrendered the premises to the landlord.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company's Tier subsidiary is a defendant in various lawsuits from
vendors who are seeking moneys which are payable, by the State of Florida,
for services related to the assessment and clean-up of petroleum
contamination. The services for which payments are sought are generally
authorized for reimbursement pursuant to legislative enactments. The
lawsuits have mostly resulted from the State of Florida delaying payments
and by eliminating the payment of interest. The Company has been
successful in eliminating similar lawsuits as its "funding packages" are
factored, as discussed in Note 10 and submitted to the State of Florida.
Also in lieu, the Company can pay the plaintiffs the amount due and then
recoup most or all of these funds from the State of Florida.
The Company is also a defendant in four cases not related to reimbursement
from the State of Florida. These cases involve allegations of direct
debts of the Company. The original debts of the plaintiff's had been
recorded on the Company's financial statements.
The State of Florida has notified the Company of approximately $220,000 of
expenses included in funded packages that will not be approved for
reimbursement. The investor's who funded the packages will seek
reimbursement from the Company on these shortfalls.
The Company does not anticipate that any of these claims will survive the
plan of reorganization.
The Company's subsidiary PTS has various claims and pending actions
incident to the business operations of the Company including equipment
delivered for the Mexican project. One supplier obtained a judgement of
$388,904, which is included in the amounts already recorded as payables
for this project. In the opinion of management, the Company's potential
liability in all pending actions and claims had been properly accrued for.
The Company's subsidiary PTS has entered into an employment agreement with
its President for a period of five years beginning September 29, 1995 that
provides for a minimum annual salary of $150,000 and also benefits,
performance bonuses and a commission of 1% of the purchase price on all
acquisitions completed on behalf of the Company. The Company terminated
the president in May of 1996 and is involved in litigation with their
former president. The former president is seeking salary under the terms
of the employment agreement and under a cross complaint the Company is
seeking a reduction in the note payable, discussed in Note 5, pursuant to
its lawsuit which among other things alleges breech of contract, failure
to disclose a pending lawsuit as well as misrepresentation of financial
conditions.
The Company's subsidiary PTS has also entered into an employment agreement
with its Vice President for a period of three years commencing September
29, 1995 that provides for annual compensation of $72,000 plus benefits
and an option to purchase common stock of the Company valued at $100,000
issued in the form of a warrant.
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES - (Continued)
In connection with the spin off of its MBT subsidiary discussed in Note 3,
the Company subsequently became aware of the possibility of financial
improprieties and potential misstatements in financial statements
previously issued. The Company has initiated a lawsuit against the former
president of this subsidiary to whom the other subsidiary had been spun
off to. The suit alleges, amongst other items, that the president did not
make available financial information as required in its agreement to the
parent company. The Company is seeking $5,000,000 in damages, in a
lawsuit filed in Florida. Both the former president and the former
subsidiary corporation have defaulted and the Company is proceeding to
obtain a default judgement against them. The Company cannot at this time
reasonably predict whether it will be able to collect this judgement.
NOTE 8 - INCOME TAXES
Provision for income taxes relating to the company's Tier subsidiary
consists of the following:
1997 1996
(Income tax expense) benefit from taxes
- deferred $ - $ -
Provision for income tax differs from income tax expense that would result
from applying domestic statutory rates to pretax income from continuing
operations as follows:
1997 1996
Effect of non-deductible expenses $ - $ -
Deferred tax effects of temporary differences - 79,374
(Provision for) benefit from income taxes $ - $ 79,374
Deferred taxes consist of the following at September 30;
Total deferred tax assets $1,148,016 $1,313,129
Less: valuation allowance (1,148,016) (1,171,276)
141,853
Total deferred tax liabilities - (141,853)
Net deferred tax assets $ - $ -
<PAGE>
NOTE 8 - INCOME TAXES(continued)
Deferred tax assets and liabilities are attributable to temporary
differences relating to accounts receivable and accounts payable that
arise primarily because one of the Company's subsidiaries is on a cash
basis for federal income tax purposes. The other subsidiary has deferred
tax assets which are attributable to temporary differences relating to the
anticipated loss on long term contracts. The approximate tax affects of
these temporary differences are reflected in the figures for total
deferred tax assets and total deferred tax liabilities above. In
addition, the Company has net operating loss carryovers of approximately
$7,887,530 available to offset taxable income. At the date of the quasi-
reorganization discussed in Note 3 the Company had available net operation
loss carryforwards of $3,050,140 after which the tax benefits will be
reported as a direct addition to contributed capital if the tax benefits
are recognized in a subsequent year. Deferred tax assets are provided on
net operating loss carryforwards for tax purposes of $4,837,390 which have
arisen subsequent to the quasi-reorganization.
NOTE 9 - FINANCING OF RECEIVABLES
Sale of Receivables:
During 1992, the company's PTS subsidiary began selling all or part of its
trade receivables to a financial institution. Under the terms of the
agreement, the Company receives 85% of the sold receivable on a
nonrecourse basis. Of the remaining 15%, 2% is retained by the financial
institution as a fee charged to the company and 13% is remitted to the
Company upon receipt from the Company's customer. As of September 30,
1996 included in other receivables was a balance due from financial
institutions of $48,774
Outside Funding of Vendors By Investors:
The Company's Tier subsidiary has paid premiums to finance companies to
fund certain project receivables upon completion approval by the state of
Florida. No amounts are outstanding as of September 30, 1997 on such
receivables. In connection with this sale the unamortized bonding
premiums were written off to zero and included in impairment loss for the
year ended September 30, 1996.
The Receivables of the Tier subsidiary have been used as collateral to
fund the payment of certain contracts payable to vendors which in turn
have been funded by outside investors.
In connection with the funding and closing of individual contracts,
$291,237 has been escrowed for various potential charges by Florida or the
funder of which the company estimates $96,108 to be the allowance for
escrow loss during the year ended September 30, 1996.
NOTE 10 - DEFINED EMPLOYEE CONTRIBUTION PLANS
Effective May 1, 1990, the Company's PTS subsidiary adopted the Comerica
Bank-Texas Profit Sharing and 401(k) Master Defined Contribution Plan and
Trust. All employees are eligible for participation. The Company may
make matching contributions equal to the participant's eligible
contributions, which may not exceed 5% of the participant's compensation
for the plan year. No matching contributions to the plan were made during
the year ending September 30, 1996.
NOTE 11 - NOTES PAYABLE
Notes payable consisted of the following at September 30, 1996:
Note payable, 8% interest, originally due
December 1, 1994, unsecured and in arrears $ 48,000
Note payable, 9% interest, originally due
December 23, 1993, unsecured and in arrears 25,000
Note payable, 9% interest, originally due
November 18, 1993, unsecured and in arrears 33,000
Note payable, 8% interest, originally due
December 22, 1994, unsecured and in arrears 30,561
$ 136,561
During the year ended September 30, 1997 the company discontinued
operations in the Florida subsidary and these notes were included in
cancelation of indebtedness income for that year.
NOTE 12 - SEGMENT INFORMATION
During the year ended September 30, 1996 the Company operated principally
in two industries, engineering placement services and remediation of
gasoline contaminated properties. During the year ended September 30, 1997
the company only had operating activities in the engineering placement
services subsidary and therefore no segment information is provided for
that period. Operations in the engineering placement service involve the
placement of qualified people from the company's pool of professionals at
utility companies in North America for a fee. Operations in remediation
services involves managing for a fee clean up on approved sites and
subsequent reimbursement in the State of Florida. Total revenue by
industry includes both sales to unaffiliated customers, as reported in the
Company's consolidated income statement.
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added or deducted:
general corporate expenses, interest expense, income taxes. Depreciation
and amortization for engineering placement services and remediation
services, respectively was $123,666 and $196,401. Capital expenditures
for the two industries was $11,277 and $0, respectively.
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry.
NOTE 12 - SEGMENT INFORMATION - (Continued)
To reconcile industry information with consolidated amounts, eliminations
have been made for intercompany advances and intercompany charges.
Engineering
Placement Remediation Elimi-
Services Services nations Consolidated
Sales to
unaffiliated
customers $3,672,357 $1,082,360 $ 0 $ 4,754,717
Intersegment
sales - - - -
Total revenue $3,672,357 $1,082,360 $ 0 $ 4,754,717
Operating loss (215,321) (2,106,746) 66,282 $(2,255,785)
General corporate
expenses 239,142
Interest expense 189,515
Income from
continuing
operations
before income
taxes (2,684,442)
Identifiable
assets at
September 30,
1996 $2,174,249 $3,349,289 $(181,877) $5,341,661
Total assets at
September 30,
1996 5,341,661
NOTE 13 - SUBSEQUENT EVENTS (1996)
In December 1996, the president of the Florida subsidiary resigned along
with the remaining full time employees of this division. The Company has
engaged and will engage a consultant to review administer the remaining
contracts in progress, and follow up potential short falls and escrows
relating to the projects, as funded under Florida's prior reimbursement
plan.
Effective January 1, 1997 the Company will solicit, yet has to obtain,
contracts under the new program and cannot reasonably predict the cash
flow from this division. The effect of this may be to cease all current
reserve in the Florida subsidiary. The Company has included in impairment
loss one-half of the remaining value of goodwill recorded when this
subsidiary was acquired as well as 100% of the remaining bonding premiums
paid to provide funding under the prior method of funding these contracts.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE.
PART III
Item 9. Directors and Executive Officers of Registrant.
(a) Directors and Officers. The following schedule sets forth the name
of each director and officer of the Company and the nature of all positions, and
offices with the Company presently held by them during the fiscal year ended
September 30, 1997. Each director and officer, except Amin Bishara who was
appointed temporarily to fill a vacancy, has been elected until the next annual
meeting of shareholders of the Company, or until his successor shall have been
elected and qualified. As part of the acquisition agreement with Plant Technical
Services, Inc., of Texas, some of the previous directors have resigned and new
directors have been appointed in their place as of September 30, 1996.
The executive officers and directors of the Company are as follows:
Name Age Position Held
Warren Douglas Cattanach 51 Director and Officer
(resigned December, 1996)
George E. Fiske 60 Director and Officer
(resigned January, 1997)
Amin T. Bishara 51 Director (Temporary)
(terminated May, 1996)
Frank Corris 49 President of Plant
Technical Services, Inc.
(resigned May 1997)
William O'Callaghan 55 Outside Director
Martin Sportschuetz 35 Outside Director
Jochen Brenner 30 Outside Director
(resigned July 1997)
Warren Douglas (Doug) Cattanach, had been the President and CEO of Tier of
Florida since January of 1994. He had served as Vice President and Construction
Coordinator of Tier since June of 1992. Previous to that position was the Vice
President, Chief Estimator and Project Manager of the Greater Bay Construction
Company, where he was involved in commercial construction projects of up to
$5m. His experience as Project Coordinator and General Manager was gained while
working for Innovative Remodeling and Design, Inc.; Soltesz/Brandt Development
Corporation; and Chattan Development Corporation, during the period from June
1989 until September 1991. On December 26, 1996, Mr. Cattanach resigned as
president of Tier of Florida.
Amin T. Bishara joined the Company as a temporary Director on September 27,
1995, pending stockholder approval, as part of the acquisition and merger
agreement with Plant Technical Services, Inc. Mr. Bishara was the majority
shareholder of PTS and originally stayed on as the President of the subsidiary
and was assigned a seat on the Board of Directors. On May 19, 1996 Mr. Bishara
was terminated. The Company is presently in litigation with Mr. Bishara.
Martin Sportschuetz became a director in March, 1996 and represents the
interest of various German clients who have invested in the Company since 1993.
Mr. Jochen A. Brenner became a director of the Company in connection with
the shareholders' meeting of March 15, 1996, in representation for the interest
of German clients who have been purchasing the Company's securities in the open
market since 1993. Mr. Brenner is the founder and chief executive officer of SFU
Group, Ltd. SFU manages funds for a number of other private investors, including
investments in real estate, energy, and currency trading. Mr. Brenner attended
the University of Hohenheim, Stuttgart, where he studied economics from 1986 to
1989. Mr Brenner resigned upon the filing of the Company's voluntary Petition
for Bankruptcy under Chapter 11.
Item 10. Executive Compensation.
Securities
of property
Salaries, insurance
fees, benefits or
director's repayment
Name of individual fees, of
or number of Capacities in commission personal
persons in group which served and Bonuses Benefits
Warren Douglas Cattanach Director/Officer $ 26,400 0
Amin T. Bishara Director (Temporary) 0 0
Frank Corris Officer 36,000 0
Officers and Directors
as a group $ 62,400 0
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Management
The following table sets forth the number of Common Shares of the Company
owned by record, or to the knowledge of the Company, beneficially, by each
Officer or Director of the Company and by each person owning five percent or
more of the Company's outstanding shares, as of September 30, 1996.
Amount and Nature of Percentage of
Name and Address Beneficial Ownership Class Owned
Warren Douglas Cattanach 609,250 7.09%
Amin T. Bishara 750,000 8.73%
All officers and directors as a group own 1,359,250 or 15.82% of the
outstanding shares of the Company.
Item 12. Certain Relationships and Related Transactions.
The Company paid $35,100 in 1996 to a company affiliated with a stockholder
and former officer for fees in connection with the issuance of stock to overseas
investors.
During the year ended September 30, 1996, $44,419 was charged to operations
based upon the value ascribed to 110,000 shares which were issued to a law firm
and a consultant for services performed during the period. During the year ended
September 30,1997, $18,250 was treated as a reduction of operating expenses as
a result of the recission of 45,625 of these shares.
Included in amounts due to related parties at September 30, 1996 for
expenses advanced by a company affiliated with a stockholder and director of the
company is $754,399 and $9,000 advanced from a corporate stockholder. Other than
the $9,000 from the corporate stockholder, these amounts bear an interest rate
of prime and are due upon demand.
Note payable to stockholder (the former sole stockholder of PTS) includes
$7,145 of a non-interest bearing instrument. Additionally, this note has been
reduced by amounts reserved for the anticipated loss on long term contract and
$918,944 remains which represents the balance on the acquisition note after such
reduction, bearing interest at 8%. The company commenced litigation with this
shareholder and during the fiscal year ended September 30, 1997.
The Company is dependent upon a secured creditor not demanding payment on
its demand note. The creditor is a company affiliated with a stockholder and
director of the Company.
<PAGE>
PART IV
Item 13. Exhibits.
(a)(1) The following is a list of exhibits filed as part of this
Annual Report on Form 10-KSB. Where so indicated by footnote,
exhibits which were previously filed are incorporated by
reference.
Exhibit Number
Reference Description
(3a)* Articles of Incorporation, as amended
(3b)* By-laws, as amended
(4)* Specimen of Common Stock certificate
(101)* Agreement and merger plan between Tier Environmental Services,
Inc. and Plant Technical Services, Inc.
(10m)* Employment Agreement with:
(a) Amin Bishara
(b) Frank Corris
(12)* Agreement of Sale between Tier Environmental Services, Inc.
and MBT Associates, Inc.
* The above items were previously filed and are hereby incorporated by
reference.
<PAGE>
SIGNATURES
In accordance with the requirments of the Exchange Act, the registrant, caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GULFSTAR INDUSTRIES, INC.
FORMERLY TIER ENVIROMENTAL SERVICES, INC
Dated: December 31,1998,
and submitted with By:/s/William O'Callaghan
re-assigned access codes William O'Calllaghan, Acting President
February 17,1999
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